NASSIM NICHOLAS TALEB: Prediction markets are for fools. They might work for a binary election, but not in the Fourth Quadrant.
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Tag Archives: Forecasting
Do the top brass really tell everything to the trading employees? Do the EPM traders have access to all the primary indicators?
Prediction markets: the future of decision-making – Companies are now making business decisions based on information employees provide via internal trading systems. – The Times of London – 2008-09-04
“-We use them [“them” = the enterprise prediction markets] as another point in the decision-making process, alongside asking experts and other business leaders,”- said Christina LaComb, a computer scientist in the R&-D lab at GE.
OK. You’-re using enterprise prediction markets- you’-ve gotten your name in the newspapers- you’-re “-cool”-.
And our good friend David Perry’-s gotten your money.
But do your event derivative traders have the same access as you do to “-experts”- and other “-business leaders”-?
Or do you leave them in the dark? In that case, your enterprise prediction markets would be clueless, useless, and worthless.
2008 US ELECTORAL MAP PREDICTION: The 2008 US elections thru the prism of the prediction markets – 2008 US presidential and congressional elections – US President Prediction + US Congress Prediction – Barack Obama vs. John McCain
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#1. Explainer On Prediction Markets
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Prediction markets produce dynamic, objective probabilistic predictions on the outcomes of future events by aggregating disparate pieces of information that traders bring when they agree on prices. Prediction markets are meta forecasting tools that feed on the advanced indicators (i.e., the primary sources of information). Garbage in, garbage out…- Intelligence in, intelligence out…-
A prediction market is a market for a contract that yields payments based on the outcome of a partially uncertain future event, such as an election. A contract pays $100 only if candidate X wins the election, and $0 otherwise. When the market price of an X contract is $60, the prediction market believes that candidate X has a 60% chance of winning the election. The price of this event derivative can be interpreted as the objective probability of the future outcome (i.e., its most statistically accurate forecast). A 60% probability means that, in a series of events each with a 60% probability, then 6 times out of 10, the favored outcome will occur- and 4 times out of 10, the unfavored outcome will occur.
Each prediction exchange organizes its own set of real-money and/or play-money markets, using either a CDA or a MSR mechanism.
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More Info:
– The Best Resources On Prediction Markets = The Best External Web Links + The Best Midas Oracle Posts
– Prediction Market Science
– The Midas Oracle Explainers On Prediction Markets
– All The Midas Oracle Explainers On Prediction Markets
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#2. Probabilistic Predictions = Charts Of Prediction Markets
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Put your mouse on your selected chart, right-click, and open the link in another browser tab to get directed to the prediction market page of your favorite exchange.
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InTrade
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2008 US Electoral College
2008 Electoral Map Prediction = InTrade – Electoral College Prediction Markets = Probabilistic predictions for the 2008 US presidential elections based on market data from InTrade Ireland = electoralmarkets.com
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– This is a dynamic chart, which is up to date. Click on the image, and open the website in another browser tab to get the bigger version.
FAMOUS SCIENTIST TO ROBIN HIGH IQ HANSON: Science, which is a very long-term endeavor, does not need your stickin idea about scoreable predictions and track records. Please, go back to minding economic issues in your Ivory Tower, and let us run science our way, on our timing. Thanks. Appreciated.
Overcoming Whatever:
I don’-t really think the comparison with sports/business/weather forecasters really holds up, for a prosaic reason —- in particle physics, the timescale for experiments is years and decades, not days. There is no way to efficiently grade/reward people on the accuracy of their predictions, and correspondingly no real incentive for anyone to make very quantitative predictions.
On the other hand, it’-s not as if there is no incentive to be right. If you devote your life to working out the ramifications of low-energy supersymmetry and it’-s not there, you won’-t get fired (if you have tenure), but on the other hand your life’-s work will be useless. Which is a pretty big incentive.
Posted by: Sean Carroll [from Cosmic Variance] | August 11, 2008 at 12:25 PM
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Sean, I don’-t understand the relevance of the timescale to the efficient grading of predictions. Given enough forecasts we can see a signal of accuracy above the noise of luck in individual forecasts. I agree that the longer the timescale the weaker are incentives from any given reward tied to scoring. But I’-m not really focused on incentives in this post – I’-m focused on whether it is reasonable for folks to crow about being vindicated when they weren’-t willing to make scoreable forecasts.
Posted by: Robin Hanson | August 11, 2008 at 12:35 PM
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Scientists don’-t want to make scoreable forecasts.
Hence, it is impossible to collect track records.
Period.
Robin Hanson’-s idea has no application —-over than vanity blogging.
Let’-s go back to our prediction markets (where traders work, for free, as info collectors).
Let’-s not waste our precious time on fruitless ideas.
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Track Record Collecting vs. Prediction Markets
Robin Hanson’-s false good idea: collecting track records.
But his post is the living proof that he is wrong:
- Prediction markets incentivize traders in researching issues (reading the experts’- works), making probability bets, and delivering a collective verdict-
- Experts don’-t like to state publicly their home-made probabilistic predictions —-as his post shows.
And if experts are not used to express scoreable forecasts, then, by essence, you can’-t collect anything. Hence, the superiority of the prediction market method.
Another false good idea from Robin Hanson.
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Prediction Markets within the Forecasting Community
I have downloaded the final program schedule (PDF file) of the 28th International Symposium on Forecasting, and browsed thru all the paper abstracts that will be presented. Wow. There are dozens and dozens.. many one hundred or two…- It took me a while to get to the bottom of that file.
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I saw 3 or 4 papers on prediction markets (or “-betting markets”-).
I spotted some names I know. 
Besides Andreas, who will be at Nice for the symposium?
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The field of prediction markets can be seen as a sub-set of the forecasting community. However, browsing the forecasting paper abstracts, I came up with the idea that we are competitors of all those guys / gals. We propose a process by which traders (like bees) go out there and gather all bits of information (sometimes coming from those forecasting experts), and a market mechanism delivers a collective verdict about what’-s going to happen. One can set up a prediction market, and skips the reading of those forecasting experts’- reports —-let the incentivized traders do the work. In that perspective, the prediction market process is both more meta than the forecasting methods and also a competitor of them.
Why bother reading all those forecasting experts’- reports when we can read the prediction markets?
Convenience, convenience, convenience.
Time is money. Let the incentivized traders do the time-consuming work.
And we get the honey.
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Psstt… Spot that comment, on Google News, about… bellwethers… from a political scientist.
“-Come November, the bellwether election predictor module might be one additional source others might want to take a look at when calling a state red or blue.”-
Spot in passing the mention of our…- “-high-stakes, casino-style prediction markets”-…-
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Suffolk University – Political Research Center
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Predictify is about building track records of human predictors.
Robert Scoble interviews their CTO.
Video
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Predictify is not a prediction exchange. We think prediction markets are superior to polls and surveys, don’-t we?
With Predictify, the mechanism delivering the collective verdict is simplistic: it’-s a poll —-with possibility to get down to each individual answer.
Their conversation is very interesting, nevertheless —-in great part due to Robert Scoble’-s intense curiosity.
Technically, the video is awesome and plays well —-even with my old computer and slow DSL line. Kudos to the Fast Company techies.
UPDATE: I don’-t like that their video starts off automatically, though. With YouTube, we decide to play the video —-it is not imposed on us.
UPDATE: Alas, their embedded video does not go into the blog feed. 
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UPDATE: I e-mailed my remarks to Robert Scoble, and he’-s asked to his techie to look into the issues.
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UPDATE: I see that the video does not start on its own, now. They managed to correct that. Rest the fact that their videos don’-t go into feeds.
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PREDICTION MARKETS HAVE ARRIVED: Bloomberg columnist shames Indias government FOR NOT USING prediction markets to forecast demand.
WOW. This is big.
Andy Mukherjee:
[…] Finally, demand estimation is too important to be left entirely to experts.
Companies such as Google Inc. are harnessing the power of prediction markets —- which gather information from a large number of participants —- to generate useful forecasts.
There’-s no reason why governments can’-t do the same.
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Great idea.
Let’-s shame the 95% of Fortune-500 companies for not using enterprise prediction markets.
- Shame on you, McDonald’-s, for not using enterprise prediction markets.
- Shame on you, Nike, for not using enterprise prediction markets.
- Shame on you, Conquest Capital, for not using enterprise prediction markets.
- etc. etc. etc.
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Previous blog posts by Chris F. Masse:
- Midas Oracle is only 6 times smaller than Fred Wilson’s blog, “A VC”.
- The best blogs on prediction markets
- The New Republic profiles the next Vice President of the United States of America —Jim Webb, maybe.
- No Trades (other than at the start) —-> Not a reliable predictor, as of today
- How you should read Midas Oracle
- The best prediction exchanges
- “There will be no media consumption left in ten years that is not delivered over an IP network. There will be no newspapers, no magazines that are delivered in paper form. Everything gets delivered in an electronic form.”
Prediction Markets: A new Special Interest Group on forecastingprinciples.com
The marketsforforecasting.com Special Interest Group provides a resource for researchers and practitioners who are interested in the field of prediction markets.
In keeping with the objectives of forecastingprinciples.com, this SIG will present research findings that support evidence-based principles. In particular, the site covers research that provides guidelines, prescriptions, rules, conditions, action statements, or advice about what to do in given situations.
The current site is a beta-version. To further develop the content, we ask for your contributions!
The material for this special interest group is maintained by Andreas Graefe. Please contact him for further information, and with corrections, additions, or suggestions for these pages.